The regulator said that as the mortgage market became more competitive and lenders chased market share it was important that the customer remained central to the decisions about product innovation and the strategies to implement them.
The findings of the review revealed some banks, building societies and smaller niche lenders had failed to embed customer-focused principles into their culture. One of the worrying findings highlighted an over-reliance on one or two ‘conduct champions’ to make sure the customer was considered in all steps of the lending and product decision making process.
We asked our panel of experts how lenders can chase market share and protect consumers’ interests at the same time.
Charles Haresnape, managing director, mortgages and commercial lending, Aldermore says putting the customer at the heart of the lending and product decisions helps to increase market share, the two go hand-in-hand.
Prem Griffith, consultant for Bovill, the financial services regulatory consultants, says lenders need to challenge themselves on whether the product meets a genuine customer need.
Brad Fordham, managing director of Santander for Intermediaries, says constantly identifying, assessing, managing, reporting and then reassessing potential risks leads to good customer outcomes.
Charles Haresnape is managing director, mortgages and commercial lending, Aldermore
Customer experience and impact should be one of the cornerstones of lenders’ strategies and that is why it was somewhat concerning to read the FCA’s report this week.
Conduct risk as a tracker to evidence correct behaviours will vary in how it is implemented from lender to lender but the principles are clear.
At Aldermore, and hopefully elsewhere, we continue to make huge efforts to engage all our employees to ensure they are aware of this and understand the importance.
This is achieved by regular dialogue through workshops, team meetings and feedback from customers and brokers.
The product approval process must also take account of customer needs and be able to articulate how their needs are met with a product. Mortgage processes should be regularly reviewed to ensure they are not only compliant but also fit for purpose and making the end-to-end experience as good and quick as possible.
Achieving market share is not an issue; it is how this is done without disadvantaging customers. For smaller lenders like us, putting customers at the heart of our lending strategies is actually the best way to increase market share. It means we are able to compete for the areas of the market that the big lenders do not cater to, such as the self-employed or those on interest-only mortgages.
By protecting the interests of our customers, we are gaining market share, which means our objectives are fully aligned. The key is to have constant feedback loops with brokers and customers to ensure both volume and appropriate experiences are achieved together.
Prem Griffith is a consultant for Bovill, the financial services regulatory consultants
The FCA’s recent thematic review looked at governance around mortgage lending strategies and product development. The regulator delved into strategic decision making and whether it’s adequately challenged from a customer perspective.
The theory was that some lenders, especially those unable to compete on price, may develop innovative products for which they can charge a higher rate without properly considering the suitability of these products for their borrowers’ needs.
Encouragingly, the FCA did not find widespread malpractice, and there is progress in shifting towards a more ‘customer-centric culture’. But the FCA clearly thinks there is more to be done across the industry to ensure that a proper awareness of conduct risk and focus on customer outcomes is embedded into the culture of all firms.
Developing profitable business lines while giving due consideration to customer outcomes is a fundamental challenge for financial services firms. The FCA is clear in its expectations that customer outcomes are key in all decision making rather than just a ‘box to be ticked’ when developing profitable product-lines.
It is not sufficient to appoint a ‘customer champion’ – the FCA requires firms to make sure their culture nurtures adequate awareness and consideration for customer outcomes at all levels.
Ultimately, lenders looking to innovate must make sure they start with the customer. Does the product meet a genuine need? Is it fair and reasonable? By making sure that customers’ interests are considered at each stage of product development, lenders can meet the FCA’s requirements while creating profitable new products.
Brad Fordham is managing director of Santander for Intermediaries
The FCA report quite rightly asserts that good customer outcomes are paramount when it comes to responsible mortgage lending. Our approach to this at Santander is both holistic and wholehearted. We challenge our people to take personal responsibility for managing risk and we recognise that a good or poor outcome for a customer can be determined at any stage of the lending process: from the moment of inception of a new product or service, or a change of criteria, right through to delivery and post-sales.
This means that we’re constantly identifying, assessing, managing, reporting and then reassessing potential risks to good customer outcomes throughout the lending process.
One recent example of this is our dedicated new build desk which we developed from a customer point of view working to support brokers and ultimately builders and homebuyers. When we were considering how to launch this proposition, we looked at how we could best support customers and brokers by addressing gaps in the market.
For example, we launched a range of intermediary rates on our 2.5 and 5-year fixed options with a longer, nine month completion deadline for new build property buyers. This was in response to extended build times so we wanted our customers to be certain about the product they would end up with if the completion is longer than a traditional product’s expiry date.
“Our aim as always is to be a responsible mortgage lender while at the same time doing everything we can to ensure good outcomes for our customers.”
